What RVs Say About the American Economy

ELKHART, Ind.—Anyone despairing about the possibility of an economic slowdown may want to visit this county of 200,000 in northern Indiana for a boost.

Elkhart County is the capital of the recreational-vehicle (RV) industry, with 65 percent of all RVs made in the county, according to the Recreational Vehicle Industry Association. And right now, the recreational vehicle industry is doing very, very well. “We’re going gangbusters,” Wes Bogan, marketing director of RV company Thor Motor Coach, told me on a tour of the factory where the vehicles are assembled. The RV industry predicts that 2017 will be a banner year, with manufacturers shipping a record 438,000 units, up 4.4 percent from 2016.

This is good news not just for the thousands of people employed in the RV and related industries in Indiana. Usually, economists look at some fairly standard indicators to assess the economy’s health: new claims for unemployment insurance filed by the recently jobless, consumer confidence surveys, and the consumer confidence index, which measures how Americans feel about the economy. (Some also look to wackier signs: Alan Greenspan has a theory that an uptick in men’s underwear sales is good economic news.)

But RV sales turn out to be a pretty good predictor too: When RV sales are doing well, the economy follows; when RV sales tank, the economy is soon to tank too.

Annual RV Industry Shipments

As the chart indicates, the RV industry has repeatedly fallen in advance of more widespread economic troubles. RV sales started dropping in 1999; the economy did not crash until 2001. Between 2006 and 2007, RV sales again dropped—this time by 9.5 percent. The GDP still grew in that period, at an annual rate of 4.5 percent. But between 2007 and 2009 GDP growth slowed to 1.7 percent, and dropped 2 percent between 2008 and 2009. In fact, RV sales track closely with the Conference Board’s Leading Economic Index, an oft-used measure that pulls together a series of factors, including average weekly hours in manufacturing, building permits issued, average weekly claims for unemployment insurance, manufacturers’ new orders, stock prices, and average consumer expectations, to predict how the economy will fare.

When Americans feel free enough to go on vacations and use their time to relax, and not work, it usually means the economy is ticking up.

It makes sense that the RV industry is an accurate forecaster of the economy. People buy RVs when they have some extra money to spare. They also buy RVs when they feel financially secure enough to go on a long trip. Some Americans choose to spend their leisure time in RVs, and when Americans feel free enough to go on vacations and use their time to relax, and not work, it usually means the economy is ticking up.

In addition, shoppers often depend on credit to help them make these purchases, so a rise in RV sales means there’s credit available for big-ticket purchases. “We’ve been a leading indicator up and down for decades now,” said Kevin Broom, a spokesman for the Recreational Vehicle Industry Association, the trade group representing the industry. “It’s a large discretionary purchase that people borrow money to make.”

In some ways, RVs are the quintessential American-made item. They combine the home-building industry and the auto industry, and, as I learned on a tour of the Thor Motor Coach manufacturing facility, they’re made by skilled craftsman with little automation.

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A RV begins as a chassis, essentially a flatbed truck, which RV companies buy from big automakers such as General Motors or Ford. Once Thor receives the chassis, workers add walls, as they would in a home, laying out where the bathroom will go, the bedroom, the living room. They install—by hand—foam insulation, cabinets, toilets, fixtures, wires, electrical outlets. When the living room part of the vehicle is completed, they add the fiberglass walls and ceilings. Each RV is made with a different floor plan and different add-ons, like walls that expand once the vehicle is parked to create more space. Each piece of this process requires specialized workers, as building a home does. Almost none of it is automated—I saw hardly any machines in the factory. And each RV is made after the factory receives an order from the dealership, Bogan told me, meaning that the number of vehicles a factory makes is a good sign of how many such vehicles people want.

Broome, of the Recreational Vehicle Industry Association, said that as consumer confidence stabilized following the recession, Americans began buying more RVs. Shipments reached a low of 165,700 in 2009, and began to tick up again the following year. In 2015, 374,200 RVs were sold. In the three months ending on October 31, Thor Industries, which is the parent company of Thor Motor Coach, saw RV sales grow 65.8 percent. The company hit a record income in the quarter, pulling in $78.7 million.

Though the industry was generally buoyed by a return to a growing economy, it also benefitted from a few specific federal policies, such as the Term Asset-Backed Securities Loan Facility, or TALF, which helped some dealerships secure loans needed to stay afloat, according to Broome. The 2009 stimulus bill also included what was called a “net operating loss carryback” provision that allowed certain small businesses to offset some of their losses with lower tax payments.

As I wrote earlier this week, that doesn’t necessarily mean that people here have positive feelings about President Obama, or the time that he was in office, during which time the RV industry experienced a recovery. But looking at numbers alone can help take the politics out of it. Another good year for Thor and other RV companies seems to mean another strong year for the economy, for fans of both Obama and of President-elect Trump.

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